Econ 2009

[cheesehead]

Originally Posted by ewmayer

My Comment: Nowhere is it written that bondholders should be made whole at taxpayer expense ... but perhaps one reason the government has been so reluctant to even hint at bondholders getting a haircut is that foreign governments (especially China) own huge amounts of such bonds.

Wait a minute ... I know China owns about $1 trillion of U.S. Treasury bonds; do you have a reliable source that China owns comparably large amounts of corporate bank bonds? That article was about bank bonds, not U.S. Treasury bonds.

There was a reason Hillary Clinton jumped through hoops to take human rights issues off the table during her recent visit to Beijing - if we want the Chinese govt to continue to dutifully buy U.S. treasury debt and help fund our record spate of bailout/stimulus-related deficit spending, we can`t afford to piss off the top brass in Beijing. Hence all the kowtowing by Hillary.

Yes, but that's about treasury bonds, not corporate bonds AFAIK.

[ewmayer]

Originally Posted by cheesehead

Wait a minute ... I know China owns about $1 trillion of U.S. Treasury bonds; do you have a reliable source that China owns comparably large amounts of corporate bank bonds? That article was about bank bonds, not U.S. Treasury bonds.

Google "China Investment Corporation" ... but you're right, China's main holdings are US Treasuries and agency bonds, so Hillary's kowtowing was probably mostly with respect to keeping the money for those flowing, needed (among other things) to finance the Obama administration's stimulus spending spree. The agency bonds were a major issue last year when the government quasi-nationalized Fannie and Freddie - they absolutely needed to keep those bondholders whole, because of the implied (and perhaps made-explicit-to-Hank-Paulson-via-the-red-phone) threat of the SWFs dumping agency bonds.

--------------------------------

Boomers Go Bust: The Silver Lining to Shared Penury

As more and more boomers scale down their retirement plans and consider alternative living arrangements, it's worth asking: Is shared housing such a bad thing for aging boomers? Does a return to the Communal idea, borne of economic necessity, also have emotional, social, and environmental benefits? Why wait for the retirement home or hospice to live with other people? With the nation full of worthless, ridiculously large, and mostly empty houses, why not fill them with the newly penurious and like-minded boomers in need of housing?

My Comment: A startling excerpt from the second article in Mish`s roundup, one your local realtor probably wouldn`t want you to hear:

These calculations imply that, as a result of the collapse of the housing bubble, millions of middle class homeowners still have little or no equity even after they have been homeowners for several decades. These households will be in the same situation as first-time homebuyers, forced to struggle to find the money needed to put up a down payment for a new home. This will make it especially difficult for many baby boomers to leave their current homes and buy housing that might be more suitable for their retirement.

Finally, the projections show that for both age groups [45-54 and 55-64], the renters within each wealth quintile in 2004 will have more wealth in 2009 than homeowners in all three scenarios. In the second and third scenarios, renters will have dramatically more wealth in 2009 than homeowners who started in the same wealth quintile.

Freddie Mac to Draw $30.8 Billion in Treasury Aid Following Quarterly Loss: Freddie Mac, the mortgage-finance company thrust into a leading role in President Barack Obama’s homeowner rescue plans, said it will tap $30.8 billion in federal aid as deterioration in its loan holdings led to a record loss.


Cuomo Says Merrill Employees May Have Marked Down Portfolios After Bonuses: Merrill Lynch & Co. employees may have written down the bank’s holdings after their 2008 bonuses were set, leading to losses that were larger than expected, New York Attorney General Andrew Cuomo said.

“Less than a week after Merrill voted its premature bonuses, Merrill determined that it would incur an unexpected additional $7 billion in losses for the fourth quarter of 2008, beyond the $8 billion it was already anticipating,” Cuomo said today in court papers. “It appears that some of these losses may have been booked by Merrill employees who marked down their portfolios only after their 2008 bonuses were set.”

The papers were filed in opposition to Bank of America Corp.’s motion to intervene in a probe of the Merrill bonuses and stop public disclosure of who received the bonuses and how much they got. Bank of America acquired Merrill in January.

My Comment: Can you say "conspiracy to commit fraud?"

[Xyzzy]

We grew weary of watching our meager investments lose value day after day, so we pulled most our money out and bought a pile of lame treasury bonds and spent the rest on a neat new watch. It isn't a horological masterpiece like something from A. Lange & Söhne, but is is fun and it has a nice vintage look. If we are going to lose money we may as well look good while doing it.

[ewmayer]

Madoff Ordered to Jail Pending Sentencing After Ponzi-Scheme Guilty Plea: Bernard Madoff was jailed after admitting he masterminded the largest Ponzi scheme in history, an epic swindle that may have reached $65 billion and made him the symbol of investor distrust in a global recession.

The case doesn’t end with Madoff’s plea. Investigators have seized control of his offices at the lipstick-shaped building at 885 Third Avenue in Manhattan, where Madoff Securities operated out of three floors. Prosecutors say his subordinates helped him swindle investors. A central issue for investigators is whether employees knew of the fraud. No one else has been charged.

Madoff didn’t sign a plea deal that would have granted him leniency or other consideration in exchange for cooperation with the government. He was forced to plead guilty to all 11 counts against him because he refused to admit to a conspiracy, a charge that would have required him to disclose co- conspirators, according to people familiar with the case.

Prosecutors are hunting for Madoff’s assets, as they seek forfeiture of the $170 billion they said moved through Madoff Securities since the fraud began in the 1980s. The firm’s bankruptcy trustee has found about $1 billion in cash and securities.

My Comment: Madoff`s lawyers claim his wife`s assets are unrelated to the scam, but based on recent revelations that she was not especially wealthy when she married him that hardly seems credible - wonder if prosecutors will really go after her and the rest of the [likely] unindicted co-conspirators. Meanwhile, a smaller-scale Madoff-style ponzi was revealed yesterday here in the SF bay area - like Madoff, this one promised unreasonably high returns (2-3% per month, "guaranteed") via magical stock-trading software, and was an affinity scam, in this case using the scammer-in-chief`s ties to the local Mormon community to pass the key hurdle for any scam, gaining the victims` trust.


GE loses top rating in downgrade: Standard & Poor's knocks down conglomerate and GE Capital's credit to 'AA+' from perfect 'AAA,' citing worsening economic conditions.

S&P said it lowered the company's rating to "AA+" from "AAA," because it expects the worsening economy to cause GE's holdings to deteriorate in value. GE's finance arm GE Capital Corp. (GECC) also received a one-notch downgrade to AA+.
...
The rating agency said that it still believes that GE is on solid footing, predicting that the multinational company will be able to generate about $2 billion in cash flow due to its huge reduction of its dividend to 10 cents from 31 cents late last month.
...
GE was one of only six American companies to hold AAA status. The five remaining are Berkshire Hathaway Inc. (BRK.A), Automatic Data Processing (ADP), Exxon Mobil Corp. (XOM), Johnson & Johnson (JNJ) and Microsoft Corp (MSFT).

My Comment: Apparently Berkshire has enough cash on hand to keep its AAA despite Warren Buffett`s holdings getting a nearly 50% haircut in the past year. Saw on the evening n00z yesterday that Warren himself lost nearly $20 billion in net worth last year, causing him to slip back behind Bill Gates (whose portfolio also took a steep hit, just not as bad as WEB`s) in the official rankings of the World`s Richest Überkapitalisten. In response to the reporter`s asking something to the effect of "yeah, but they`re still super-rich ... how much pain can they really be feeling?", the financial analyst being interviewed for the piece replied - and I`m not joking - to the effect of "For many, this means a wrenching change in lifestyle - if you were worth $2 billion and now you`re suddenly only worth $100 million, there goes the private jet ... the worst thing for the economy is panicky billionaires."

[Feel free to insert obligatory "that is so rich ... oh wait, it`s not anymore" joke here].


Rise in foreclosures 'a shock': February saw an unexpected jump in foreclosure filings as the weak economy puts more pressure on borrowers.

More than 74,000 homes were lost to bank repossessions during the month, up from 67,000 in January, according to a regular monthly report from RealtyTrac, the online marketer of foreclosed properties. Nearly 1.2 million have been lost since the foreclosure crisis hit in August 2007.

The number of foreclosure filings rose 6% during the month after falling 10% in January. Worse, filings leaped nearly 30% compared with February 2008. And the results confounded expectations: A downtrend had been expected due to the numerous foreclosure moratoriums in effect during the month.
0:00 /1:07Plan to aid ailing homeowners

"We were very surprised," said RealtyTrac spokesman Rick Sharga. "The moratorium were led by big players like Fannie and Freddie and all the major banks. It was supposed to cover the whole waterfront. The fact that foreclosures still went up was a shock."

A particularly troubling aspect of the report was that, for many borrowers, once they go into default, they never get out despite moratorium efforts. That's borne out by comparing bank repossessions - homes actually lost by borrowers - with total foreclosure filings: Nationally, repossessions increased 11% for the month, almost double the 6% rise for filings.

TV Guide Alert:

U.S. Viewers and worldwide fans of comedy Central`s The Daily show will want to make sure to catch tonight`s show: CNBC chief stock-pumping shill Jim Cramer goes toe-to-toe with Jon Stewart, who basically tore Cramer and the rest of the CNBC bulltards a new one last week. "If I`d listened to Jim Cramer, I`d have a million dollars ... assuming I`d started with a hundred million dollars." I fear however that the face-to-face format may lead to an excess of politeness, so don`t expect any fireworks. Cramer, despite being the ultimate contrary stock-market indicator, is smart at understand his real role of entertainer, and thus knows that for someone like himself there is no such thing as bad publicity. Thus the "entering the lion`s den" is not such a brave thing as it might seem for him.

[Fusion_power]

The high pay packages ceo's pull in are also part of Canada's culture.

http://ca.finance.yahoo.com/personal...ion-bank-slips

Ed Clark of the Toronto-Dominion Bank (tsx: TD) is the latest CEO to renounce the whopping bonus he was awarded by his board. Earlier this month, Clark announced that he would be donating $3 million in bonus payments to charity after TD’s board awarded him $11 million in total direct compensation for the year. That $11 million was down 19 per cent from the $13.5 million Clark was awarded in 2007, according to the bank’s annual proxy circular. “While the Board stands behind its original compensation award decision, we respect Ed’s wishes,” TD chairman John Thompson said in a release. TD stock is trading at around $33 per share — less than half what it was worth last year.

Earlier this year, Royal Bank of Canada (tsx: RY) CEO Gordon Nixon announced that he was declining to accept $2.75 million in deferred shares and another $2.2 million in stock options. The Bank of Montreal (tsx: BMO) announced that its new CEO, William Downe, would receive nearly $6 million — up from $5.5 million paid in 2007 — after the bank “performed well in challenging times.” After other Canadian bankers began turning down bonus money, however, Downe announced he would not be accepting $4.1 million of that compensation package.

Rick Waugh, CEO at the Bank of Nova Scotia (tsx: BNS), took a 20 per cent cut in his compensation to $7.5 million. Canadian Imperial Bank of Commerce (tsx: CM) chief executive Gerald McCaughey’s compensation dropped to $5.3 million from more than $9 million last year. According to the bank’s annual proxy, however, McCaughey would have been eligible for a paycheque worth nearly $13 million because of a one-year lag in setting CIBC bonuses. McCaughey also received a sweetener to his pension plan that could increase its value to $1.6 million per year — up $300,000. In December, CIBC posted a loss of $2.1 billion for the year.

To justify their generous compensation awards, most bank boards cited the relatively strong performance of our banks compared to their international rivals, many of which loaded their balance sheets up with sub prime mortgages, collateralized debt obligations and other now-toxic assets. And while the Canadian banks should be commended for not playing Russian roulette with shareholders’ capital, outperforming Wall Street’s mortgage markets this year is a little like being “taller than pygmies,” said Ian de Verteuil, an analyst at BMO Capital Markets in a recent research note. “It isn’t a harsh yardstick against which to be judged.”

One major advantage Canada has is a much stronger bank regulatory framework than the U.S. as well as a pessimistic outlook on mega mergers. This has resulted in their banks coming through the fiscal meltdown relatively unscathed. Their stock price has slipped up to 50%, but overall, their business is solid. By comparison, all of the major U.S. banks are in serious trouble and quite a few regional and local institutions are seriously impacted. What should we be learning from Canada?

DarJones

[Uncwilly]

Originally Posted by Xyzzy

We grew weary of watching our meager investments lose value day after day, so we pulled most our money out.

Those of us that hold on through the bottom of the dip will laugh at you on the way up.

[R.D. Silverman]

Originally Posted by Uncwilly

Those of us that hold on through the bottom of the dip will laugh at you on the way up.

The same group of economists who sat around and "fiddled while Rome
burned" have given Obama a failing grade (and Bernanke a passing grade!!)
for their handling of the economy. (according to WSJ)

Talk about Chutzpah!!!!!

The only occupations that I hold in lower regard than economists are
lawyers and politicians.....

sad. really sad....

[MooooMoo]

We grew weary of watching our meager investments lose value day after day, so we pulled most our money out

Originally Posted by Uncwilly

Those of us that hold on through the bottom of the dip will laugh at you on the way up.

I got lucky enough to buy near the bottom, so I should have made a nice profit if I chose to sell my shares later today. Unfortunately, I wasn't brave enough to buy that many shares, so most of the profits were lost to broker fees . I guess I'll just have to hope for a better day tomorrow...

[cheesehead]

Originally Posted by ewmayer

Google "China Investment Corporation"

Thanks.

From the Wikipedia article (http://en.wikipedia.org/wiki/China_I...nt_Corporation):

Market watchdogs want to know what would happen if China, Russia and Arab countries were to systematically acquire significant holdings in sensitive industries such as telecommunications, energy and defense. It could prove difficult to draw the line between sound government policies and neo-protectionism.

- - -

Originally Posted by ewmayer

China's main holdings are US Treasuries and agency bonds,

< snip >

The agency bonds were a major issue last year when the government quasi-nationalized Fannie and Freddie - they absolutely needed to keep those bondholders whole, because of the implied (and perhaps made-explicit-to-Hank-Paulson-via-the-red-phone) threat of the SWFs dumping agency bonds.

Oh yeah, I keep forgetting agency bonds.

[garo]

Originally Posted by Uncwilly

Those of us that hold on through the bottom of the dip will laugh at you on the way up.

Perhaps, perhaps. But then those of us that weren't holding or were shorting for the past year were laughing at the buy and hold crowd (does that include you?) on the way down.

[ewmayer]

Originally Posted by cheesehead

From the Wikipedia article (http://en.wikipedia.org/wiki/China_I...nt_Corporation):

Have we got a pertinent weekend movie pick for you foreign-debtholder-conspiracy-theory buffs...they should do a remake involving a splinter finacial-terrorist faction of the Irish republican Army, they could call it the "Rollover IRA".

Originally Posted by garo

Perhaps, perhaps. But then those of us that weren't holding or were shorting for the past year were laughing at the buy and hold crowd (does that include you?) on the way down.

Tut tut, garo - not nice to gloat. ;) And as we both know from hard personal experience, playing the counter-market game has its perils. This week`s running of the bulls on Wall Street was a perfect illustration:

U.S. Stocks Extend Biggest Weekly Gain Since November on Health-Care Rally: U.S. stocks rose, extending the biggest weekly gain for the Standard & Poor’s 500 Index since November, as a rally in health-care companies overshadowed a drop in energy shares on concern demand for oil is falling.

My Comment: Big rally in the beaten-down financial sector this week, on the major banks trying to one-up each other on sort-of-announcements that they didn`t really need the government`s bailout money (at least not this week) and that they just kinda sorta might be profitable so far this year, except for those pesky huge mortgage-loan portfolio writedowns yet to come, which they curiously avoided mentioning in their various interviews and "leaked internal memos". The basis for a sustainable rally, or yet another dead cat bounce? Time will tell.


Kravis Losses Show Obama Fails to Close Lending Gap Raising Bankruptcies: Investment funds that purchased a majority of the lowest-rated loans during the credit boom have stopped buying, threatening to undermine President Obama’s plan to pull the economy out of the worst recession since 1982.

My Comment: so much for Geithner`s airy comments about "bringing in private capital alongside government investment" as a way to restart credit markets.



Buffett's Berkshire loses 'perfect' rating: Fitch ratings cuts Berkshire Hathaway's credit rating to 'AA+' from perfect 'AAA', citing CEO Warren Buffett's tight grip on the company.

SINGAPORE (Reuters) -- Warren Buffett's Berkshire Hathaway was stripped of its 'AAA' credit rating by Fitch, barely hours after S&P cut General Electric Co's top-tier rating, as the global financial crisis pummels America's corporate titans.

Citing concerns about Berkshire's equity and derivatives investments, as well as Buffett's tight grip on the company, ratings agency Fitch cut the insurance and investment company's issuer default rating by one notch to 'AA+'.

The downgrade is another setback to Buffett, 78, coming a day after the billionaire lost his position as the world's richest man to Microsoft Inc founder Bill Gates, according to Forbes' annual list. Buffett's net worth plunged to $37 billion from $62 billion last year, the list said.

"Fitch views the company's potential earnings and capital volatility derived from its large, unhedged market exposures as inconsistent with the stability required at the 'AAA' level," the ratings agency said in its statement on Berkshire.

Those exposures include Berkshire's equity investments, as well as its holdings of derivative contracts tied to equity and credit markets, Fitch said.

Fitch is the first major credit agency to cut Berkshire's 'AAA' rating. The move comes after General Electric Co. (GE, Fortune 500) was stripped of its 'AAA' rating by Standard & Poor's on Thursday.

My Comment: Once again, Fitch shows that it is the only one of the major ratingshouses worth paying any attention to. Funny that Buffett, who has referred to the unregulated derivatives markets as "financial weapons of mass destruction", now finds himself hoist by his own petard by way of his-allegedly-"transparent" dealings in derivatives.


Household net worth sinks $11.2 trillion: As Americans watch their wealth crumble, the Fed says household debt fell 2% in the fourth quarter of 2008, the first recorded decline.

NEW YORK (CNNMoney.com) -- Household net worth in the United States declined by $11.2 trillion last year, according to a government report issued Thursday, and Americans curbed their spending as they watched the value of their assets fall.

The Federal Reserve said household net worth, which is the difference between assets and liabilities, sunk by $5.1 trillion in the fourth quarter to $51.5 trillion. It was the sixth straight quarterly decline from the peak of $64.4 trillion in the second quarter of 2007.

The drop in net worth in the fourth quarter of 2008 was the largest drop in dollar terms on record, going back to 1951, when the government began keeping quarterly records. The 9% drop was also the largest drop as a percentage change on record.

My Comment: Not that any of that evaporated paper wealth is "deflationary", mind you - just like the insane runup in home and equities prices between 2002 and 2007 wasn`t "inflationary", according to the Federal Reserve. And you know you can trust them to be straight with us.


Obama Seeks to Reassure China U.S. Debt Safe, Deficits Are Under Control: The Obama administration sought to ease Chinese Premier Wen Jiabao’s concern about U.S. government debt, reiterating pledges to cut the budget deficit in half in four years.

“The U.S. Treasury market remains the deepest and most liquid market in the world,” Treasury spokeswoman Heather Wong said in an e-mailed statement. “President Obama is committed to taking the steps necessary to restore growth and put this country on the path of fiscal sustainability, including cutting the long-term deficit in half over the next four years.”

My Comment: So first blowing the annual deficit through the roof (admittedly much of that is by way of ending the Bush administration`s bogus accounting practices for e.g. the Iraq war spending) allows you set the "initial deficit" bar to upwards of $2 trillion ... then if you can manage to "cut it to just $1 trillion" you`ve made good on your promise. Kinda like those department stores that slap an inflated "regular price" label on a bunch of stuff and then put it "on sale".

But I agree, words like "deep" and "liquid" do seem apropos when one is discussing an "ocean of debt". Also interesting: One wonders whether the choice of a Treasury spokesperson who happens to have a Chinese surname to make an announcement to soothe the worries of the Chinese Premier was mere coincidence.